Minimum CAPEX, Maximum OPEX - Expresso’s strategy for African expansion

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Expresso is Sudatel’s international arm and it plans to move from four African operations to having an additional eight operations in its next financial year. Its strategy is focused on CDMA which it believes will deliver profitability through “minimum CAPEX, maximum OPEX”. Russell Southwood spoke this week to the President of the Sudatel Group, Emad Ahmed.

Q: How did the idea of Sudatel running an international group arise?

After the fifth public share subscription in 2005, Sudatel raised a lot of money, US$400 million. At this point the Board decided to look at for opportunities outside of Sudan. It also sold its mobile subsidiary Mobitel to MTC (now Zain) and this raised US$1.3 billion.

Q: Which countries are you operating in?

Ghana, Mauritania, Senegal and Nigeria. We launched one month ago in Senegal. Chinguitel was also a new launch and operates in 800 mghz with CDMA. In Ghana and Nigeria we acquired a percentage of existing operations, respectively Kasapa and Intercellular. Unfortunately we bid and lost in Rwanda and Mali but there will be other opportunities.

In Mauritania we have 300,000 subscribers and are targeting acquiring 30% of the market this year and in the following year. In Senegal we are the third operating company and are targeting a 20-25% market share. We’ve managed to avoid a price war and during the three weeks of the soft launch with our CDMA network, we got 40,000 customers.

Ghana is tough. If we succeed in maintaining our existing position (400,000 subscribers), it will be good. In Nigeria, there are a lot of players and I think in five years we will have something less than 10%.

Q: What’s the scale of your ambition?

There is no exact limit but in 2009/2010 we want to have eight additional operations. Our strategy is different (from other operators) because we will always focus on minimum CAPEX and maximum OPEX. We’re targeting profitability. CDMA licences are very cheap. CDMA also offers better coverage (in terms of numbers of base stations) and capacity and is generally better than GSM. We get the opportunity to get frequency at a lower cost.

Our main domain is Central and West Africa and not North or South Africa. Up until 2012, we’ll only be looking at opportunities in Africa.

Q: You’ve made a choice to adopt CDMA but will you look at GSM operations?

We chose CDMA as a differentiating factor from other operators in the region. All the technologies will converge with LTE or at some later point. Most vendors are prepared to converge CDMA and GSM through LTE.

Q: How many years do you think that process will take?

Three to five years.

Q: You have a mixture of mobile only and fixed and mobile companies. What services do you want to be offering?

We have a lot of old legacy telecoms systems. Fortunately with recent technology, especially with CDMA, the future is convergent so we can provide all services. So we’re in the business of being in all of those services. We’re not going to go into WiMAX but we’re doing it in Nigeria as it was already planned.

Q: Will you do Triple Play?

This is exactly what we will be doing. Here in Sudan we offer both mobile and fixed broadband. The mobile service we call Mobile DSL (MDSL) and we deliver it through CDMA 2000 (via EVDO) and UMTS. We are ready for Triple Play. We have video streaming and mobile TV under test. We’re testing both DVB-H and 3G for mobile TV.

Q: Which vendors are you using?

We have good relations with all of the vendors and have a good vendor financing programme. We use Huawei, ZTE, Nokia Siemens Networks, Ericsson and Alcatel Lucent. We also have a relationship with Motorola in Nigeria.

Q: How do you get your international bandwidth in your territories outside Sudan?

We’re still reliant on our competitors, particularly in Senegal (with Sonatel) and Ghana (with Vodafone-owned Ghana Telecom). We are seeking to find other investors who are building an additional route. We’re particularly keen to join any group who can realise this type of project. But up until this point we have made no commitments. On the existing cable in West Africa (SAT3), the remaining capacity is very minimal.

Q: What’s the turnover of the company?

We’re a little bit above US$1 billion.

Q: Who are your majority shareholders?

The Government of Sudan has 21% but there are 10,000 shareholders. It includes most of the local banks, regional banks from the Gulf, QTel, Etisalat, Arabsat and a Gulf finance company.

We came out of a programme of privatisation in 1993. The Government used to own 67% but it is already programmed to divest itself of the (final) 21%.

Q: Will you be affected by the global crisis?

Everybody is affected by the crisis but the effect is minimal. The countries we are in are not strongly tied to the international system so the effect (on our customers) is indirect.

Q: But will it affect your ability to raise investment capital?

One of the things we planned doing in 2009 with our planned expansion into new operations was to have a sixth public subscription offer. But the stock markets are not prepared to do this so it’s been delayed. It was supposed to raise a lot of money, up to US$500 million. This is one impact of lower oil prices that has affected us but we are going forward anyway, targeting opportunities with minimum CAPEX and maximum OPEX. Most opportunities will need up to US$50 million and that covers both the licence and the network.

Second mobile operator in Southern Sudan NOW set to launch

NOW (Network of the World), Southern Sudan’s second mobile operator has attracted 15,000 subscribers since its soft launch last December and is set to do a full launch shortly. The company is a Lebanese investment and is operated by MDC, a management company.

Competition is hotting up in the south as all of the larger networks (Sudani, MTN and Zain) have now got operations there. The first operator to start in the south was Gemtel which is thought to have around 40,000 subscribers.

NOW has currently got 4 of the South’s 10 states covered including the capital Juba and plans to roll out in two more states shortly. Coverage is largely in each State’s capital.